Market Research and Analysis » Competitor Analysis

What you'll learn this session

Study time: 30 minutes

The meaning and importance of competitor analysis
Different types of competitors and competition
Key methods for gathering competitor information
How to conduct a SWOT analysis on competitors
Using competitor analysis to improve business strategies
Real-world examples of effective competitor analysis

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Introduction to Competitor Analysis

Competitor analysis is a vital part of market research that helps businesses understand who they're up against in the marketplace. By studying what other businesses are doing, companies can spot opportunities, avoid threats and make better decisions about their own products and services.

Key Definitions:

Competitor Analysis: The process of identifying key competitors and evaluating their strategies to determine their strengths and weaknesses relative to your own business.
Market Share: The percentage of total sales in a market captured by a particular business or product.
Competitive Advantage: Something that gives a business an edge over its rivals, such as lower costs, better quality, or unique features.

★ Why Competitor Analysis Matters

Competitor analysis helps businesses to:

Identify gaps in the market
Understand competitor pricing strategies
Spot industry trends early
Improve their own products and services
Develop effective marketing strategies

↻ When to Conduct Competitor Analysis

Businesses should analyse competitors:

Before launching a new business
When developing new products
If sales begin to decline
When entering new markets
As part of regular business reviews

Types of Competitors

Not all competitors are the same. Understanding the different types helps businesses focus their analysis efforts more effectively.

─ Direct Competitors

Businesses that sell similar products or services to the same target market. For example, Coca-Cola and Pepsi, or Tesco and Sainsbury's.

─ Indirect Competitors

Businesses that sell different products but satisfy the same customer need. For example, a cinema and a bowling alley both provide entertainment.

─ Potential Competitors

Businesses that might enter your market in the future, such as companies in related industries or startups with innovative ideas.

Methods of Gathering Competitor Information

There are many ways to collect information about competitors. The best approach usually combines several methods.

Primary Research Methods

These involve collecting new data directly:

Mystery Shopping: Posing as a customer to experience a competitor's service first-hand.
Customer Surveys: Asking customers about their experiences with competitors.
Observation: Visiting competitor stores or websites to see how they operate.
Networking: Speaking with industry contacts at trade shows or events.

Secondary Research Methods

These involve using existing information:

Company Websites: Reviewing competitors' websites for product information, pricing and marketing messages.
Annual Reports: For public companies, these provide financial information and future plans.
News Articles: Business news can reveal competitor strategies and challenges.
Social Media: Monitoring competitors' social media accounts for insights into their marketing and customer service.
Review Sites: Reading customer reviews can reveal competitor strengths and weaknesses.

Case Study Focus: Tesco's Competitor Analysis

In the early 2010s, Tesco faced growing competition from discount supermarkets Aldi and Lidl. Through competitor analysis, Tesco identified that these stores were attracting customers with simpler store layouts, fewer product choices and significantly lower prices.

In response, Tesco launched its own discount chain, Jack's, in 2018. They also simplified their main stores, reduced product ranges and introduced price-matching with discounters on everyday items. This strategy helped Tesco maintain its market leadership despite the challenging competition.

SWOT Analysis for Competitors

A SWOT analysis is a simple but powerful tool for evaluating competitors. It looks at Strengths, Weaknesses, Opportunities and Threats.

+ Strengths & Opportunities

Strengths: What does the competitor do well? This might include strong brand recognition, loyal customers, unique products, or efficient operations.

Opportunities: What external factors could benefit the competitor? This might include growing markets, new technologies, or changes in regulations.

− Weaknesses & Threats

Weaknesses: Where does the competitor struggle? This might include poor customer service, outdated products, or high prices.

Threats: What external factors could harm the competitor? This might include new competitors, changing customer preferences, or economic downturns.

Using Competitor Analysis in Business Strategy

Once you've gathered information about competitors, the next step is to use it to improve your own business strategy.

Strategic Applications of Competitor Analysis

Product Development: Identify gaps in competitors' offerings that your business could fill.
Pricing Strategy: Set prices that are competitive but still profitable.
Marketing Messages: Highlight what makes your business different from competitors.
Customer Service: Improve areas where competitors are falling short.
Market Positioning: Find a unique place in the market that competitors aren't serving well.

Case Study Focus: Netflix vs. Blockbuster

Netflix's competitor analysis of Blockbuster in the early 2000s revealed a significant weakness: customers disliked Blockbuster's late fees. Netflix created a subscription model with no late fees, initially for DVD rentals by post.

When streaming technology became viable, Netflix quickly pivoted to online streaming, while Blockbuster remained focused on physical stores. By identifying and exploiting Blockbuster's weaknesses, Netflix transformed the entire entertainment industry and drove Blockbuster into bankruptcy by 2010.

Ethical Considerations in Competitor Analysis

While competitor analysis is a normal business practice, it's important to conduct it ethically and legally.

Legal Methods: Use publicly available information, mystery shopping and customer feedback.
Illegal Methods: Avoid industrial espionage, hacking, or bribing employees for confidential information.
Grey Areas: Be cautious with methods like hiring competitors' former employees specifically to gain insider knowledge.

Competitor Analysis in the Digital Age

Digital tools have made competitor analysis both easier and more complex.

Digital Tools for Competitor Analysis

SEO Tools: Services like SEMrush or Ahrefs can show which keywords competitors rank for.
Social Media Analytics: Tools that track engagement with competitors' social content.
Price Monitoring Software: Automatically tracks competitors' pricing changes.
Review Analysis: Tools that aggregate and analyse customer reviews across platforms.

✓ Benefits of Digital Analysis

Digital tools allow businesses to:

Gather data more quickly and cheaply
Track competitors in real-time
Analyse larger amounts of information
Identify trends more easily

✗ Challenges of Digital Analysis

But digital analysis also presents challenges:

Information overload
Difficulty verifying online information
Competitors can hide their strategies
Tools can be expensive for small businesses

Summary: Key Points to Remember

Competitor analysis helps businesses understand the market landscape and make better strategic decisions.
Different types of competitors require different approaches to analysis.
Both primary and secondary research methods are valuable for gathering competitor information.
SWOT analysis provides a structured way to evaluate competitors.
The insights from competitor analysis should directly inform business strategy.
Digital tools have transformed how businesses conduct competitor analysis.
Always conduct competitor analysis legally and ethically.

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